7 Cognitive Biases Which Cost You Money Gambling

Gamblers can be superstitious a lot. You notice it while you are at a land-based casino quite often. Someone at the roulette table will turn and say to you, “These are my lucky trousers.” Or you will notice another gambler at the slot machine who clutches a lucky pendant or bracelet before she pulls on the lever.

While these superstitions may seem quite “out there,” oftentimes they have fairly simple explanations in the form of cognitive biases.

Also called “heuristics,” cognitive biases are shortcuts our brains make while processing information. These shortcuts involve inferences which appear to make intuitive sense, but which are not actually logically grounded. Heuristics errors in gambling have received quite a bit of study.

Not every gambler who makes these cognitive errors necessarily is going to show it so openly. The gambler who turns to you and says, “The machine is pretty hot right now” is also guilty of a cognitive bias—and it is likely to cost him money. While his assertion may seem less ridiculous than a pair of lucky trousers, it has no more basis in reality.

You do not have to be playing at a land-based casino to lose money because of cognitive biases. They can affect you just as surely when you are sitting at home on your computer gambling online.

In fact, in some ways they may be even more insidious as they sneak up on you. You are in isolation after all, and gambling online can have a much faster pace than gambling offline. You can lose yourself clicking again and again on the slot machine “spin” button, or playing through one fast-paced poker game after another.

So it is extra important to slow down and ask yourself about your assumptions. Here are a few common cognitive biases which may be costing you money when you gamble online!

1. Gambler’s Fallacy

This is the most famous cognitive bias associated with gambling, just as you would guess given the name. It is also sometimes referred to as the “Monte Carlo” fallacy.

If you fall victim to the Gambler’s Fallacy, you believe that an event which is occurring more frequently now will occur less frequently in the future. Likewise, you think that an event which is happening less frequently now will happen more frequently in the future.

This goes back to why someone might say to you that a slot machine is “hot” or “cold.”

You might get that feeling too sometimes—or you might think that if a machine has been cold for a really long time, surely it will “heat up” soon.

This is why you might sometimes find yourself clicking again and again online with the same slot or roulette game. You figure that your luck is going to turn around anytime now, because how could you continue losing?

But probabilities are not connected one to the next in a long string. Whether a coin toss lands on heads or tails truly is random; it has nothing to do with the previous toss. And the random number generator (RNG) which determines the outcomes of your roulette and slot games online also has no memory of your long string of losses. In a way, for the RNG, every spin is the first.

You should look at it the same way. Make your decisions based on the demands of your bankroll, not an imaginary string of continuity running through your spins.

2. Denomination Effect

This is a tendency people have to spend more money if it is in smaller denominations.

It was demonstrated through a 2009 study by Priya Raghubir and Joydeep Srivastava. University students were given a dollar each, either in the form of a single bill or four quarters. They were then offered a choice to either save the money or buy candy. The students with the quarters were more likely to buy the candy.

Four quarters and a single dollar bill are of course an equivalent amount of money. But the dollar feels more valuable.

This is highly applicable when you are selecting coin sizes while gambling on slot machines. Many gamblers find it psychologically “easier” to gamble with the smaller coin sizes, and thus may end up putting more money into the game before they realize they are outside their budget.

So the denomination effect is something to watch out for when you are managing your money.

3. Anthropomorphism

This is where we assign human traits to something which is not human.

For gamblers, the most obvious example of this is Lady Luck.

You might protest, “Of course I know there isn’t really some mythical goddess named Lady Luck. It’s just a turn of phrase.”

But even so, many gamblers behave as if there is. They silently entreat Lady Luck in their heads to help them out with this next spin, and they curse her for being fickle when she does not comply.

But luck is not really fickle, and it is not something you really can have a relationship with. It is not a woman who sometimes treats you right, other times leads you on, and sometimes spurns you. In fact, it is pretty hard to define luck at all. Really, it all comes down to probabilities. And probabilities exist without the slightest awareness of who you are and what you want.

It is good to remind yourself of this now and again, because when we envision a faceless force as a person, we feel like we have someone to negotiate with.

But if luck really were a woman, she would be blind, deaf, and indifferent. Acknowledge that luck is something entirely out of your control (by definition), and you will make smarter gambling decisions.

4. Travis Syndrome

This is a cognitive bias where you assume that events taking place in the present are more significant than events which took place in the past.

This may also play into the perception of “hot” and “cold” slot games.

If a slot game just paid out a couple of times, you may assume that this is more significant data than the string of losses you incurred previously. As such, it must mean conditions have changed, and the game is “hot.” But if you are enduring a string of losses, you may neglect to account for wins you had hours ago, and consider the slot to be “cold.”

In reality, conditions have not changed at all. The present is no more significant than the past. The slot game’s outcomes are still determined through a random number generator.

There are other forms this bias can take as well.

Imagine for example that you are a fairly good poker player, but lately you are on a losing streak. The losing streak may not be outside of your expectations (now and again every good player will have one), but it is pushing you outside your comfort zone.

You start to ask yourself unsettling questions: “Have I lost my edge? Is my system useless?” You find yourself getting more and more distressed. You start violating your own rules and making decisions you usually would never consider.

At this point of course, you start piling on even more losses. You are on full-on tilt now, and rapidly losing whatever vestiges remain of your control. If you do not snap out of it, you will soon lose whatever is left of your bankroll.

Situations like the one above are very common, and they are connected in part to the Travis Syndrome. If you have had a solid poker system working for years, and you generally win, it does not make sense to underestimate the value of all those years simply because in the present, you are having a hard time.

But we tend to fixate on what is happening to us right now. As a result, we sometimes place far too much weight on the present.

If you find yourself with an unexpected losing streak, it is a great idea to take a break. Come back in a few days to your gambling. You may have some insights in the meantime which will show you where you were going wrong.

But quite often, a losing streak is simply a run of bad luck. There is always risk involved with gambling, even with a system. It could well be that you will come back to it in a few days and the problem will have evaporated.

That is especially likely if you were unconsciously interfering with your own success—as often happens when you are feeling the Travis effect.

5. Dunning-Kruger Effect

This is a cognitive bias where unskilled individuals have an over-inflated view of their own abilities, and where skillful individuals tend to underestimate themselves.

What causes the Dunning-Kruger Effect? There are probably a lot of factors which can play into it. With individuals who tend to overestimate themselves, pride is typically a big factor. With those who underestimate themselves, the culprit could be low self-esteem. Sometimes however, it simply comes down to setting a high bar and failing to reach it.

There may also be some causality/correlation error which plays into Dunning-Kruger as well, especially among gamblers.

We have all seen a gambler on a winning streak for example who starts to get a big head. He refuses to acknowledge that luck is the cause of his winning—a factor over which he has not an iota of control. Instead, he figures he deserves his winning streak. He attributes it to his skill, or simply to his magnificence as a person.

You might see this with narcissists desperate to prove something to themselves, or privileged high rollers who have been taught by life to expect things to go their way.

But it can happen to anyone. Winning feels great, and most of us feel like we deserve more from life than we get. So when a winning streak happens, it is hard not to get a little full of ourselves.

But if you let that happen, you may stop acknowledging the reality of your situation. The first step to losing whatever control you have while gambling is to refuse to acknowledge you do not have full control.

At that point, losses are guaranteed to follow sooner or later.

The Dunning-Kruger Effect can be just as harmful when it works in the other direction as well.

You might for example be quite skilled at poker or baccarat, but for whatever reason, you simply do not believe in yourself.

If that is the case, you might hold yourself back from taking the chances you should. You might refuse to put down higher stakes, even if you can afford it. In extreme cases, it could be even worse—you might keep playing free games when you actually could be making real money!

Try to assess your skills honestly—as well as the role of your skills. If you are playing poker or baccarat, your skills may be enough to help you win reliably time and again, if you truly are skilled. But if you are playing slots or keno or roulette, your skill is irrelevant.

6. Illusion of Control

The illusion of control is something I have already hinted at a number of times, and it is one of the most pervasive cognitive biases among gamblers online and offline.

Just as the name implies, the illusion of control is where you believe that you have more control over events than you actually do.

You are more likely to be subject to the illusion of control when you are on a winning streak. Feedback which emphasizes success is going to amplify the illusion of control, while feedback which emphasizes failure can decrease the illusion or even negate it. That is why on a losing streak you are far more likely to acknowledge how little control you have.

Of course, you need to account for context. If you are playing slots and you are on a losing streak, that feeling that you are out of control is indeed the veil of illusion being ripped aside. But if you are playing poker and you are on a losing streak, you might experience the reverse illusion—that you never had any control at all, which simply is not true. In a game that involves luck and skill, you do have some control over outcomes.

Interestingly enough, the illusion of control tends to be weaker among depressive individuals as well.

Why do we sometimes have an illusion of control? It may have something to do with a need to control our circumstances. On an unconscious level (or a conscious one), most of us are aware that there are a lot of different aspects of our lives over which we have minimal or no control. But living with that much uncertainty is quite a struggle, so the mind compensates with a comfortable illusion.

Psychologists report this illusion is often associated with greater mental health.

This may also relate to one of the reasons gambling has such a universal and timeless appeal. A lot of people gamble because it does provide them with a comfortable illusion of control, which helps them to cope with other aspects of their lives which they cannot influence.

Just keep in mind that this can lead to a lot of avoidable losses!

7. Illusory Correlation

Finally, one more cognitive bias which many gamblers are subject to is the belief that two variables are related when they are not.

This is connected to the popular phrase, “Correlation does not imply causation.”

Basically, just because you notice a correlation between two events, that does not mean that one event caused the other.

Consider the gambler who wears some kind of lucky charm every time they sit down to play. That player may have noticed that they won a jackpot on two separate occasions where they were wearing the charm, so they decide to wear it all the time, believing it will bring them luck.

The gambler believes (even unconsciously) that the charm actually had some influence on events, and quite literally caused them to win the jackpot twice. As such, they believe wearing the charm will cause them to win another.

But this is a case where there is correlation, but no causation.

In reality, the gambler won both those jackpots because the random number generator happened to generate that outcome. The fact that they were wearing the charm was a coincidence.

You can see how this connects back to the illusion of control. The charm provides the gambler with that illusion.

Conclusion: Cognitive Biases Comfort Us … But They Do Not Pay Us

Why do we have cognitive biases? There are probably many psychological reasons for their existence, but you will notice one commonality between the biases on this list: most of them are comforting.

They make us feel like we possess more control over our gambling than we actually do.

But that means they also keep us playing even when we are losing money and should really pull back and think about what we are doing.

If you have a money management system for all the games you play as well as strategic systems for playing games of skill, you will have a set of rules for your online gambling which can maximize your wins and put a stopper on your losses when things go south.

But those systems will only protect your bankroll if you follow those rules with discipline and avoid falling into the traps of cognitive biases. Once you relinquish the belief that you have more control than you really do, you will seize the most important bit of control you can have—the ability to make rational gambling decisions.

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